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Treasury Direct, 7.12% Inflation Adjusted Bonds


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Treasury Direct, 7.12% Inflation Adjusted Bonds

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  #1 (permalink)
 SMCJB 
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Not trading related, but good investment idea.

Current rate on US Treasury iBonds is 7.12%. WSJ has done several pieces about these over last few months. Biggest downside is you can only invest $10k/year, have to hold for 1 year and if you hold for less than 5 years then you forfeit interest from the previous 3 months. Still aren't many other effectively risk-free investments out there with yields like this. If inflation stays high for the next 12-18 months these could be great earners.

https://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm
https://www.wsj.com/articles/i-bonds-the-safe-high-return-trade-hiding-in-plain-sight-11622213324
https://www.wsj.com/articles/treasury-has-a-i-bond-bargain-inflation-stocks-interest-rates-rebalancing-investment-11639586799

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 vmodus 
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SMCJB View Post
Not trading related, but good investment idea.

Current rate on US Treasury iBonds is 7.12%. WSJ has done several pieces about these over last few months. Biggest downside is you can only invest $10k/year, have to hold for 1 year and if you hold for less than 5 years then you forfeit interest from the previous 3 months. Still aren't many other effectively risk-free investments out there with yields like this. If inflation stays high for the next 12-18 months these could be great earners.

https://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm
https://www.wsj.com/articles/i-bonds-the-safe-high-return-trade-hiding-in-plain-sight-11622213324
https://www.wsj.com/articles/treasury-has-a-i-bond-bargain-inflation-stocks-interest-rates-rebalancing-investment-11639586799

Thanks for sharing. I have been looking at some interest rate products and this may work nicely.

~vmodus

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 josh 
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SMCJB View Post
Not trading related, but good investment idea.

Current rate on US Treasury iBonds is 7.12%. WSJ has done several pieces about these over last few months. Biggest downside is you can only invest $10k/year, have to hold for 1 year and if you hold for less than 5 years then you forfeit interest from the previous 3 months. Still aren't many other effectively risk-free investments out there with yields like this. If inflation stays high for the next 12-18 months these could be great earners.

https://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm
https://www.wsj.com/articles/i-bonds-the-safe-high-return-trade-hiding-in-plain-sight-11622213324
https://www.wsj.com/articles/treasury-has-a-i-bond-bargain-inflation-stocks-interest-rates-rebalancing-investment-11639586799

The base rate on the current issue is 0%, and semi annually, the inflation rate will adjust. So, I don't quite see the real benefit here. This is literally just going to preserve the value of your dollar. Maybe the case where it really pays is if deflation were to occur, because the rate will never go below zero.

Also, unlike some treasuries like bonds, the interest on these seems to be paid out only on redemption. So, you have no interest payments coming in to reinvest.

It was obviously much better than putting it under the mattress but can you help me understand why this would be attractive @SMCJB?

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 SMCJB 
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josh View Post
Also, unlike some treasuries like bonds, the interest on these seems to be paid out only on redemption. So, you have no interest payments coming in to reinvest.

It compounds monthly so it is being reinvested.
Interest, if any, is added to the bond monthly

josh View Post
It was obviously much better than putting it under the mattress but can you help me understand why this would be attractive @SMCJB?

Really? It's not only better than putting it under the mattress but it's also better than almost any fixed income investment available. Plus you don't have the principle price risk you do in bonds. Obviously if your in debt, or have portfolio that is 100/0 this may not look attractive, but for anybody with a more traditional 60/40 style investment portfolio I would think this is attractive.

Treasury Rates
  • 1mo 0.04%
  • 3mo 0.10%
  • 6mo 0.23%
  • 1yr 0.45%
  • 2yr 0.88%
  • 3yr 1.15%
  • 5yr 1.47%
  • 10yr 1.73%
  • 20yr 2.12%
  • 30yr 2.09%

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 josh 
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SMCJB View Post
It compounds monthly so it is being reinvested.
Interest, if any, is added to the bond monthly

Really? It's not only better than putting it under the mattress but it's also better than almost any fixed income investment available. Plus you don't have the principle price risk you do in bonds. Obviously if your in debt, or have portfolio that is 100/0 this may not look attractive, but for anybody with a more traditional 60/40 style investment portfolio I would think this is attractive.

Treasury Rates
  • 1mo 0.04%
  • 3mo 0.10%
  • 6mo 0.23%
  • 1yr 0.45%
  • 2yr 0.88%
  • 3yr 1.15%
  • 5yr 1.47%
  • 10yr 1.73%
  • 20yr 2.12%
  • 30yr 2.09%

Thanks -- I missed the part about the monthly reinvestment!

Let me ask it this way, then: since this *is* an attractive product, why would one choose to buy treasuries instead of these? Purely the annual $10K investment limit?

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 SMCJB 
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josh View Post
Let me ask it this way, then: since this *is* an attractive product, why would one choose to buy treasuries instead of these? Purely the annual $10K investment limit?

I think the $10k limit would definitely be a limiting factor in that situation, but also the 1 year lock up.

The way I see it, even if you only keep this for the year minimum, AND lose the last 3 months interest, your still probably going to make 5% (depending on what the exact rate is April).

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 SMCJB 
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SMCJB View Post
Not trading related, but good investment idea.

Current rate on US Treasury iBonds is 7.12%. WSJ has done several pieces about these over last few months. Biggest downside is you can only invest $10k/year, have to hold for 1 year and if you hold for less than 5 years then you forfeit interest from the previous 3 months. Still aren't many other effectively risk-free investments out there with yields like this. If inflation stays high for the next 12-18 months these could be great earners.

https://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm
https://www.wsj.com/articles/i-bonds-the-safe-high-return-trade-hiding-in-plain-sight-11622213324
https://www.wsj.com/articles/treasury-has-a-i-bond-bargain-inflation-stocks-interest-rates-rebalancing-investment-11639586799

Looks like the new rate effective May will be 9.6% as its based upon March?s consumer-price index

https://www.wsj.com/articles/the-safe-investment-that-will-soon-yield-almost-10-11649769505


SMCJB View Post
Treasury Rates
  • 1mo 0.04%
  • 3mo 0.10%
  • 6mo 0.23%
  • 1yr 0.45%
  • 2yr 0.88%
  • 3yr 1.15%
  • 5yr 1.47%
  • 10yr 1.73%
  • 20yr 2.12%
  • 30yr 2.09%

For reference, those were the rates on Jan 7th. Today they are...
  • 1mo 0.21% +0.17%
  • 3mo 0.74% +0.64%
  • 6mo 1.20% +0.97%
  • 1yr 1.77% +1.32%
  • 2yr 2.39% +1.51%
  • 3yr 2.58% +1.43%
  • 5yr 2.66% +1.19%
  • 10yr 2.72% +0.99%
  • 20yr 2.99% +0.87%
  • 30yr 2.82% +0.73%

Wish I could arb that spread!

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 vmodus 
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SMCJB View Post
Looks like the new rate effective May will be 9.6% as its based upon March?s consumer-price index

https://www.wsj.com/articles/the-safe-investment-that-will-soon-yield-almost-10-11649769505



For reference, those were the rates on Jan 7th. Today they are...
  • 1mo 0.21% +0.17%
  • 3mo 0.74% +0.64%
  • 6mo 1.20% +0.97%
  • 1yr 1.77% +1.32%
  • 2yr 2.39% +1.51%
  • 3yr 2.58% +1.43%
  • 5yr 2.66% +1.19%
  • 10yr 2.72% +0.99%
  • 20yr 2.99% +0.87%
  • 30yr 2.82% +0.73%

Wish I could arb that spread!

Yeah, I saw that news this morning. It might be time allocate some funds over there. Thanks for sharing @SMCJB.

~vmodus

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 vmodus 
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Well, it looks like procrastination may benefit some:
https://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm

We are up to 9.62% return on the I-Series.

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 planetkill 
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SMCJB View Post
Not trading related, but good investment idea.

Current rate on US Treasury iBonds is 7.12%. WSJ has done several pieces about these over last few months. Biggest downside is you can only invest $10k/year, have to hold for 1 year and if you hold for less than 5 years then you forfeit interest from the previous 3 months. Still aren't many other effectively risk-free investments out there with yields like this. If inflation stays high for the next 12-18 months these could be great earners.

https://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm
https://www.wsj.com/articles/i-bonds-the-safe-high-return-trade-hiding-in-plain-sight-11622213324
https://www.wsj.com/articles/treasury-has-a-i-bond-bargain-inflation-stocks-interest-rates-rebalancing-investment-11639586799

I think you can also do an extra $5k/year for paper bonds, which is separate from the 10k/year electronic.

And they can also be bought for kids (although I don't know if it counts towards the adult's limit).

So a family of 4 can potentially invest $60k/year in ibonds, which currently pay >9%. Now that's not a bad savings rate... although I do miss when just a decade ago regular high yield savings accounts paid 5% interest.

https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm

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